Peter Epstein of Epstein Analysis conducts an unique CEO interview with Sam Spring of Kincora Copper.
Kincora Copper Ltd. (KCC:TSX.V) fell off traders’ radar screens as a result of an prolonged interval of inactivity in 2018, however now the corporate is cashed up, workforce in place, and prepared for in depth drilling at 5 impartial, large-scale porphyry targets with a 12-month funded price range for as much as 18,000 meters (18,000m) of drilling.
Kincora has been working in Mongolia for greater than eight years. In 2016, the corporate secured unencumbered entry to its promising Bronze Fox mission and consolidated the dominant landholding within the Southern Gobi copper-gold belt, between and on strike with Rio Tinto Plc’s (RIO:NYSE; RIO:ASX; RIO:LSE; RTPPF:OTCPK) Oyu Tolgoi (OT) copper-gold mine, and the Tsagaan Suvarga porphyry mission, through the merger with IBEX, a personal automobile not directly managed by Robert Friedland.
This attracted a world-class technical workforce, credited with a number of discoveries of Tier 1 copper deposits, trying to repeat such successes. Since then, the corporate has been executing the primary fashionable systematic exploration program throughout a district-scale landholding in a extremely mineralized, however vastly underexplored copper-gold porphyry belt. Now, drilling is simply days away.
These are thrilling occasions for Kincora, probably the most thrilling within the firm’s historical past. The corporate is in a chief place within the copper sector the place new discoveries are being effectively rewarded and profitable juniors acquired at vital premiums. For instance, simply this week Australian-listed MOD Sources was taken out by a billion-dollar market cap, Sandfire Sources NL (SFR:ASX).
A brand new cornerstone investor, Hong Kong-based New Prospect, now the second largest shareholder with about 12% of the corporate, is a pure useful resource specialist fund with an intensive international community. LIM Advisors stays the biggest investor: One of many longest working various funding managers in Asia, they make investments throughout the capital construction in deep worth and particular conditions.
Traders in small-cap pure useful resource shares know that the most effective time to be in a junior is true earlier than a giant discovery. That is the time we might be at proper now with Kincora. Administration simply raised $6.25 million ($6.25M). Will there be a brand new discovery! A couple of!! None!!! Sure, there may definitively be zero new discoveries. . .This can be a extremely speculative scenario, however backed by a workforce that has a superb monitor document of huge discoveries.
Even with out blockbuster discoveries, the corporate has deliberate a really detailed and effectively thought-out drill program that is certain to cowl quite a lot of bases and supply a pipeline of reports move over the subsequent 12 months. Elevating $6.25M in a really robust market at a $7M pre-money valuation was a giant success in and of itself, demonstrating the energy of administration, the initiatives/targets and the large alternative.
The derisking capital increase is powerful proof of the assumption by cornerstone traders and seasoned administration that Mongolia is a good place to, probably, make the most recent globally vital copper discovery since 2014. To study extra, please proceed studying this interview of Sam Spring, president and CEO of Kincora Copper.
Peter Epstein: Are you able to discuss how we acquired to the purpose of a considerable drill program beginning very quickly?
Sam Spring: After 2018 being a transitional yr of setting the proper company foundations for fulfillment, we’re getting into an thrilling interval the place the drill bit will drive Kincora’s valuation as soon as once more. This month we’ll start an aggressive, a number of rig, fully-funded drill program. The main focus is discoveries on 5 massive, impartial copper porphyry targets on our 100%-owned Bronze Fox and East Tsagaan Suvarga (East TS) initiatives.
This would be the first drill program carried out by our industry-leading technical workforce, which has discovered a number of Tier 1 copper belongings. For the final three years, we’ve undertaken the primary fashionable, district-scale, exploration throughout this vastly mineralized, however considerably underexplored Southern Gobi copper-gold belt.
As readers might know, there are two large-scale porphyry initiatives on this area, Rio Tinto/Turquoise Hill Sources’ Oyu Tolgoi open pit mine and underground growth mission, and a privately-held open pit growth mission known as Tsagaan Suvarga. We consider there are extra globally vital copper discoveries to be discovered.
Restricted drilling helps our Bronze Fox mission probably internet hosting an independently outlined, conceptual exploration goal of 1.three to 1.5M tonnes (midpoint = three.086 billion copper equal kilos). That may be an in-situ worth of $11 billion (1.32 CAD/USD, US$2.70/pound copper).
The primary gap of this system will, for the primary time, appropriately check a really massive zone (beforehand drilled within the improper route). Nevertheless, prior drilling nonetheless managed to intersect 37m at >1% copper equal (Cu eq), inside 864m of zero.38% Cu Eq.
Our East TS mission sits within the shadows of a billion-dollar open pit building mission at Tsagaan Suvarga (TS). Inside this brownfield setting, we’re drilling three separate targets which are the closet analogues to the high-grade ore our bodies at OT. . .since OT! Whereas simply targets, readers ought to perceive that what we’re exploring for is massive and in a really favorable location and geological setting. OT’s ongoing underground growth is the biggest hard-rock mining mission on the planet. It may grow to be the third largest copper mine on the planet, with a 100-year+ mine life.
Kincora was fashioned in 2011, however we’re within the strongest place in the present day that the corporate has ever been in. But, our present market cap of $12M, (with $6M money!) is a fraction of our peak valuation of almost $50M. At the moment, we had attracted a buyout provide for the corporate and had signed 14 NDAs (nondisclosure agreements) with events.
Whereas naturally I am biased, I believe it could be arduous to seek out many juniors with comparable danger/return profiles and a number of near-term catalysts, backed by a world-class administration, board, technical workforce, advisors and key shareholders, buying and selling at such a low valuation.
With the corporate shortly ramping up drilling of our current exploration portfolio, and centered on ongoing growth alternatives, Kincora is probably the most lively foreign-listed junior searching for to make the subsequent Tier 1 discovery in Mongolia.
Peter Epstein: You simply closed on a $6.25M capital increase in a really tough market. Who had been the important thing traders on this essential spherical?
Sam Spring: About 60% was taken up by two massive pure useful resource funds and related teams, who will characterize greater than 40% of Kincora’s shares going ahead. These teams, LIM Advisors and New Prospect Capital, are each Hong Kong-based funds and have a monitor document investing in Mongolia.
In whole, there have been about 30 traders within the deal, with robust board/administration participation and good assist from high-quality refined traders. As you possibly can think about, given present market situations, quite a lot of work went into this increase. We really respect the vote of confidence from those that invested.
Peter Epstein: How a lot of that $6.25M will go towards exploration? Please describe the upcoming drill program.
Sam Spring: The overwhelming majority will assist Kincora endeavor probably the most aggressive exploration and discovery drill program wherever in Mongolia this yr. About $5M will cowl as much as 18,000m of drilling at Bronze Fox and East TS, plus mission era actions and advancing earlier-stage exploration targets.
Mongolia has distinctive geological potential to host globally vital discoveries, and that’s what we’re specializing in. This elevating, with the accompanying warrant package deal, aligns our capital markets technique with our exploration and growth plans and offers us shot (however no certainty) at making new discoveries.
We’re on document stating that these drill targets are nearly as good as you get inside a world setting for his or her respective levels. The important thing driver within the subsequent 12 months is proof of excessive grade and our geological ideas, to verify our fashions and interpretations with constructive drill outcomes.
Peter Epstein: Along with your administration workforce and board, please describe current due diligence finished by impartial advisors, consultants and analysts. Didnt your largest shareholder additionally fee a examine?
Sam Spring: Our drill technique is the fruits of virtually 30 years’ copper exploration expertise on this belt by senior members of our workforce, 5 years of exploration work and mannequin refinements by ourselves and former house owners (together with Ivanhoe Mines Ltd. [IVN:TSX; IVPAF:OTCQX] and IBEX Applied sciences [IBT:TSX.V; ]) that present us with robust conviction to deal with the chosen 5 targets.
Kincora has been by way of 5 technical opinions since mid-2017, together with from 1) a number one pure useful resource personal fairness group; 2) the European Financial institution for Reconstruction and Improvement (EBRD); three and four) LIM Advisors (twice); and 5) New Prospect Capital, all of which have resulted in capital being invested.
As you may have picked up on, Peter, our largest shareholder commissioned an impartial technical evaluation of our targets, work applications and technique earlier than changing into a cornerstone investor in our newest providing. This evaluation instructed a discovery had already been made at Bronze Fox, throughout the underexplored goal zone to the west of a key regional fault in an space we’re calling West West Kasulu. That is the place the primary drill gap will go. Within the impartial advisor’s opinion, this goal space has been considerably upgraded by current exploration actions.
Whereas we’re optimistic, and administration participated within the current elevating and have undertaken detailed systematic exploration, there’s nothing left to do however drill these targets. Please let me reiterate that Kincora is a high-risk exploration play. Therefore, there are excessive rewards for fulfillment.
Peter Epstein: A danger is that it may cost tens of hundreds of thousands to delineate a beautiful NI-43-101-compliant useful resource. What’s your workforce’s purpose for the upcoming drill program? Are you able to articulate what success may appear to be?
Sam Spring: Completely. We respect the truth that porphyries are capital intensive, and that exploration may be very dangerous. Extra meters of drilling present us a greater probability of confirming our geological ideas and driving the worth creation curve for shareholders.
The perfect current instance of a large-scale copper porphyry discovery is that of SolGold plc (SOLG:AIM) at its Alpala mission in Ecuador. The deposit at Alpala is deep, so drilling prices there are considerably greater than in Mongolia. In March 2016, SolGold raised AU$5.7 million at 2.3p/share, having drilled 13 promising holes and searching for to verify its discoveryan equal drill program to what Kincora is now trying to full at our two initiatives. They’d incredible outcomes. . .Over the course of 31 months, SolGold drilled an extra 54 holes, attracted each Newcrest Mining Ltd. (NCM:ASX) and BHP Billiton Ltd. (BHP:NYSE; BHPLF:OTCPK) as strategic traders, and rerated 20 time for shareholders.
That is what success on the target-testing part of drilling may end up in, even in tough capital markets and a flat/lowering copper worth setting, which we consider is non permanent.
At Bronze Fox, our drill marketing campaign is designed to advance the strike potential away from the fault to the west, reveal the interpreted, vital enhance in tonnage and grade potential, and make sure a brand new discovery. Prior higher-grade intersections embrace three of 4 holes drilled by Kincora that returned >1% Cu and/or Cu eq, together with the most effective gap, F62, which hosted 13m of 1.15% Cu/1.41% Cu eq, inside 37m at zero.83% Cu/1.04% Cu eq and 864m at zero.38% Cu eq.
At our East TS, the geological idea we’re searching for to verify is that OT-style mineralization is current. Every of the three targets at East TS have large-scale potential, with particular person coincident geophysical anomalies equal in dimension to ore our bodies at OT and SolGold’s Alpala mission.
Whereas extra conceptual and dangerous than the 2 targets at Bronze Fox, such a setting and scale of targets is exclusive. If situated in additional established copper districts around the globe, it is seemingly the world round TS and East TS would have already seen in depth drilling.
A rule of thumb for porphyry discoveries is that ~50,000m of drilling usually supplies visibility for ~5M tonnes Cu eq steel. Train of the warrants that had been a part of the current providing would usher in an extra $15M (2.5x the current elevating), and allow one other 100,000 meters of drilling.
Peter Epstein: There are lots of copper bulls, but the value at US$2.70/lb is half of what some bulls suppose is coming. Do you may have a view on the copper worth?
Sam Spring: A very good query; we get requested that loads. I’ll go away the forecasting to the specialists, however we’re noticing that almost all traders see the writing on the wall. Like us, they consider the availability aspect will in some unspecified time in the future (maybe quickly?) wrestle to fulfill even average-trend demand progress, not to mention any acceleration from rising international electrification. This theme is being picked up by generalist traders as effectively, who’ve observed what an sudden provide shock has finished to the iron ore worth this yr.
Concerning the industry gamers (mid-tiers and majors), there was a notable, however quiet, shift towards new progress initiatives once more during the last 18 months. BHP and Rio Tinto are even speaking about natural exploration success tales, specializing in copper as a most well-liked commodity for growth. That mentioned, we’re simply beginning to see extra of the standard miners develop into earlier stage initiatives to rebuild their pipelines.
Time will inform, however I definitely suppose that even at present copper costs, if we discover what we’re in search of, there shall be vital curiosity in Kincora. A tailwind from rising copper costs would, after all, be welcomed, however given the shortage of exploration success industry-wide, globally, for a few years now, the mission pipeline is in nice want of latest, sizable discoveries. That’s what we consider Mongolia and our targets provide traders.
Peter Epstein: Please discuss Mongolia. Some readers most likely will not make investments there. What do you inform traders, shareholders, potential tradersabout Mongolia nation danger?
Sam Spring: On the time I joined Kincora in 2012, Mongolia was the quickest rising economic system on the planet. This was pushed by the primary part emergence of delivering beforehand untapped assets to worldwide markets.
This emergence meant that on the time it was nearly obligatory for coal and copper majors to be searching for entry into the southern Gobi areas, with product trucked to the world’s largest shopper of each commodities. We’re 5 prime ministers, two governments, quite a few excessive profile disputes and reversals to unfavorable funding legal guidelines later, however the rocks and big-picture potential stay unchanged.
In a panorama of few vital greenfield initiatives lately being commissioned, OT is proof of idea that Mongolia is a mature mining jurisdiction. OT is the biggest growth mission in Mongolia’s historical past. It is anticipated to account for as much as a 3rd of Mongolia’s GDP (gross home product) by the mid 2020s. It paves the way in which for corporations like ours by reducing boundaries to entry, and we and others vastly profit from newly constructed regional infrastructure.
When one seems at different copper jurisdictions, it is changing into tougher and dearer to function. Chile’s 2018 copper output was better than the second, third and fourth largest nation producers mixed. The multibillion-dollar capex profile for Chile’s Codelco, simply to maintain manufacturing flat, exhibits the rising challenges relating to water, neighborhood relations and excessive altitude, to not point out a declining copper grade!
Many different massive copper provide areas are additionally tough and/or more and more tough to function in; take a look at current developments within the Democratic Republic of Congo, China, Panama, Russia, Zambia, Indonesia, Papua-New Guinea, and so on.
Given the workforce and operational monitor document we’ve at Kincora Copper, we’re eyes huge open to the danger/reward situation in Mongolia, which we discover compelling, exploring for the subsequent globally vital copper discovery.
Your readers ought to keep tuned for drill outcomes, which ought to begin arriving in 5 to 6 weeks’ time. We count on outcomes to be ongoing for the remainder of the yr.
Peter Epstein: Thanks Sam, I believe we coated quite a lot of floor. Backside line, drill outcomes will outline Kincora Copper going ahead, and quite a lot of good cash is betting on good drill outcomes between now and year-end.
Peter Epstein is the founding father of Epstein Analysis. His background is in firm and monetary evaluation. He holds an MBA diploma in monetary evaluation from New York College’s Stern Faculty of Enterprise.[NLINSERT]
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